Investors with capital locked in private credit funds are showing a strong preference to wait out redemption queues rather than sell their positions on the secondary market at a discount. This sentiment is emerging as a significant amount of investor capital, exceeding $4.6 billion, has been trapped behind withdrawal limits imposed by private credit funds. In the first quarter of 2026, investors sought to pull approximately $13 billion from over a dozen funds, but due to caps of 5% of net assets per quarter, only about two-thirds of that amount was accessible.
The private credit market, valued at $1.8 trillion, faced significant strain earlier in 2026 with a surge in redemption requests and concerns about troubled loans. Some of the largest funds experienced writedowns, and the value of troubled loans reached levels not seen since 2017. For instance, loans on non-accrual status for the 20 largest publicly traded business development companies (BDCs) climbed to a median of 2.8% of their cost in the second quarter, up from 2% at the end of March.
Despite these challenges and an acknowledgment of "elevated credit stress" by industry leaders like David Golub of Golub Capital, many executives believe the alarmism is overblown. They point to healthy credit metrics and isolated issues, particularly noting that most loans underwritten continue to perform well. The stress is largely concentrated in investments made between 2020 and 2021 when interest rates were near zero, and companies are now struggling with higher borrowing costs. Some firms, such as BlackRock, have restructured portfolios, with BlackRock's vehicle selling a $523 million block of loans, and KKR's troubled vehicle waiving some incentive fees. However, by August 2026, the market showed signs of rebounding from its lows, with some funds, including those managed by Goldman Sachs, Ares, and Golub, either back in the green or approaching positive returns, suggesting that the worst fears for the sector might have been averted.
